Your HR and Payroll compliance and policy solution! Comply with federal, state, and international laws, find answers to your most challenging questions, get timely updates with email alerts, and more with our suite of products.

NEWS

IRS Proposes Country-by-Country Reporting Rules for 2017

For over 50 years, Bloomberg BNA’s renowned flagship daily news service, Daily Tax Report® has helped leading practitioners and policymakers stay on the cutting edge of taxation and...

By Alex M. Parker

Dec. 21 — The IRS
proposed rules requiring large companies to report information
including the amount of revenue, profit or loss, capital and
accumulated earnings for each country of operation, consistent with
OECD recommendations designed to combat base erosion and profit
shifting.

The proposed rules (REG-109822-15, RIN 1545-BM70)
would apply to U.S. parent companies—those with at least $850
million in annual revenue for the preceding annual accounting
period—for the taxable year beginning on or after the rules are
made final, ensuring that for most companies they wouldn't take
effect before Jan. 1, 2017.

The country-by-country rules were approved by the
Organization for Economic Cooperation and Development as part of
its effort to curb tax avoidance. Recommendations released by the
OECD on Oct. 5 would require companies with annual consolidated
group revenue of 750 million euros ($819 million) or more to submit
a global blueprint of their operations to the tax authority in the
country where the ultimate parent company resides. That information
can be made available, through treaty information exchange
networks, to all countries in which the company is present (193 DTR
I-2, 10/6/15).

National Security

In its proposed regulations, the Internal Revenue
Service asked for feedback on whether there are national security
implications of the country-by-country reporting requirement.

The agency noted that granting exceptions would
require it to “coordinate with other federal agencies, such as the
Department of Defense, to determine whether such an exception is
warranted.”

The IRS requests “comments with respect to the
procedures that a U.S. person should be required to follow in order
to demonstrate a national security reason to receive an exception,”
according to the proposed rules.

Who Qualifies?

The IRS also requested comments on how it should
determine which entities qualify as U.S. parent organizations—and
thus fall under the requirement—and, of those filers, which
entities are considered part of their organization.

It notes that there may be situations in which U.S.
generally accepted accounting principles, or regulations applying
to companies that file with the Securities and Exchange Commission,
might “permit or require consolidated financial accounting for
reasons other than majority ownership and situations, if any, where
U.S. GAAP or U.S. securities regulations permit separate financial
accounting of majority-owned enterprises.”

Enforcement

In the introduction to the proposed regulations, the
IRS said the documentation requirements will be useful in its
enforcement of U.S. tax law.

It said the country-by-country reports of both U.S.
and foreign entities “will help the IRS perform high-level transfer
pricing risk identification and assessment,” although the
information contained within them will “not itself constitute
conclusive evidence that transfer pricing practices are or are not
consistent with the arm's length standard.”

The reports must be filed with the company's annual
tax return.

David Ernick, a principal with
PricewaterhouseCoopers LLP in Washington, said that this gives
filers less time than the one-year period initially recommended by
the OECD.

“That gives a little less time to prepare, and that
also might have a little bit of a substantive impact in how you put
the report together,” he said, noting that all of the necessary
information from financial statements may not be available at that
filing deadline.

Opposition in Congress

Since the OECD recommendations on country-by-country
reporting were first announced earlier this year, they have become
a political flashpoint, with many Republicans questioning whether
Treasury has the authority to issue the regulations without
congressional approval.

One Republican in Congress has already promised to
put the new regulations under a harsh magnifying glass.

“New country-by-country reporting requirements on
U.S. companies must be limited and should not make it even harder
for our companies to compete,” said Rep. Kevin Brady (R-Texas),
chairman of the House Ways and Means Committee.

Brady promised that he and Rep. Charles Boustany Jr.
(R-La.) would “closely review” the legislation.

“Congress will not allow Treasury to move forward
with BEPS policies that enable foreign governments to misuse
information reporting and exploit American companies,” he
said.

To contact the reporter on this story: Alex M.
Parker in Washington at aparker@bna.com

To contact the editor responsible for this story:
Molly Moses at mmoses@bna.com

All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to books@bna.com.

Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)

Notify me when updates are available (No standing order will be created).

This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to research@bna.com.

Put me on standing order

Notify me when new releases are available (no standing order will be created)